Knowledge About Austrian Theory Weakens Fed's Power

Interesting article by John Carney about how more widespread knowledge of the Austrian business cycle theory (ABCT( could help prevent the scenario it describes, or in other words reduce the Fed's ability to manipulate the economy.

He points out that one of the responses to the rational expectations critique of ABCT that businessmen shouldn't be fooled by the artificial reduction in interest rates is that so few know about ABCT and are for that reason likely to be fooled by the Fed. And now that the theory is more popular, fewer will be fooled. Moreover, even many of those who aren't conscious believers in ABCT, still more or less understand the key points, namely that a Fed-induced boom will end in a bust.

Still, I am not so sure that this will completely end the Fed's power to start booms because first of all there are still many businessmen who don't believe in it, and secondly because there is another reason why the rational expectations critique of ABCT fails: namely that even if you are aware of the fact that the boom is unsound, you might still want to participate in it because you plan to sell your assets around the time the boom peaks, and hope until then to take advantage of the unsound boom.